11. Income Distribution

• What is stock in economic terms?


  A quantity measured at a fixed period of time.
• What are some examples of stock?

  Wealth, inventories, GDP.
• What does stock show in economic terms?

  It shows accumulation.
• What is flow in economic terms?

  A quantity which is measured with reference to a period of time.
• What are some examples of flow?

  Income, depreciation, expenditure.
• What are the key differences between stock and flow in economics?

  • Stock: Measured at a fixed period of time; examples include wealth, inventories, GDP; shows accumulation.
  • Flow: Measured with reference to a period of time; examples include income, depreciation, expenditure.
• What is income defined as?

  The receipt of spending power by persons
• How is income categorized?

  Income may be classified as productive or non-productive
• What is productive income also known as?

  Factor income
• What does productive income represent?

  Earning income from factors of production
• What is an example of productive income?

  Income from working for wages
• What is non-productive income also referred to as?

  Transfer income
• What type of income is considered unearned income?

  Income received from the government as cash social service benefits
• What is private income?

  Income earned as an employee or self-employed person
• What is gross income?

  Private income plus government transfer payments
• How is disposable income calculated?

  Gross income minus tax
• What does final income include?

  Disposable income and any indirect government benefits
• What are examples of indirect government benefits?

  Healthcare, education, EV subsidies, public transport
• How does wealth differ from income?

  Wealth is the accumulation of assets minus liabilities
• What is the formula for calculating wealth?

  Wealth = Assets - Liabilities
• What are considered assets?

  Things we own, such as land, houses, shares, and money
• What are liabilities?

  Everything we owe, including mortgages and loans
• How can wealth be acquired?

  By inheritance, saving, from income, or luck
• What are the different types of income and their definitions?

  • **Private Income**: Income earned as an employee or self-employed person.
  • **Gross Income**: Private income plus government transfer payments.
  • **Disposable Income**: Gross income minus tax.
  • **Final Income**: Disposable income and any indirect government benefits.
• What is the relationship between assets and liabilities in determining wealth?

  • Wealth is calculated as the difference between assets and liabilities.
  • Assets include things owned (land, houses, shares).
  • Liabilities include debts (mortgages, loans).
• Absolute poverty: A situation where people live below a subsistence level of income.
• Relative poverty: A situation where people do not achieve what our society defines as a minimum standard of living (differs by country, state, suburb)
• Income inequality:

  • Is a measure of the unevenness in income distribution within a population.
  • Demonstrated through a Lorenz Curve. Represented using the Gini Coefficient.
• What does the Lorenz Curve visually demonstrate?

  It shows the cumulative proportion of the population ranked by income against their cumulative share of income.
• How is the population ranked in the Lorenz Curve?

  The population is ranked according to their income, from the lowest to the highest income.
• Explanation of inequality:

  • Personal traits e.g. Personalities and talents
  • Occupational conditions e.g. Training, education and responsibilities required
  • Opportunities e.g. Family, schools you attend <== luck
  • Sickness
  • Disabilities
  • Age
  • Location
• What does the Lorenz Curve represent when everyone receives the same income?

  It would be a straight, diagonal line.
• What does it indicate if a distribution is closer to the line of equality?


  It indicates a more relatively even distribution.
• What is the Gini Coefficient used to measure?

  The degree of income inequality in a country.
• What is the range of values for the Gini Coefficient?


  It ranges from 0 to 1.
• What does a Gini Coefficient of 0 represent?

  It represents income equality.
• What does a Gini Coefficient of 1 indicate?

  It indicates absolute inequality, where one person has all the wealth.
• How is the Gini Coefficient calculated?

  By dividing the area between the diagonal and the Lorenz curve by the entire area under the diagonal.
• What is the formula for the Gini Coefficient?

  $Gini \ Coefficient =$$\frac{A}{A+B}$
• What is one strategy to improve income distribution?

  Direct taxation